Truth in Savings, Truth in Lending: Only Minor Changes

The big hope the industry had for major changes to Truth in Savings did not happen in the burden relief bill. Only minor changes actually passed. The significant changes were dropped before passage. However, even minor changes bring some improvement.

• First, effective five years after passage, the liability provisions become inoperative. After September 30, 2001, the civil liability provisions are repealed. Until that date, civil liability remains in place.
  
  
• Second, and more significant to compliance managers, is the revision to the lobby rate board rule. Lobby rate boards can now face out without violating Regulation DD. The practical value of this is that a rate board may be moved without incurring liability. You won't have to watchdog every branch and send threatening memos to staff who set the rate board in front the glass door (facing out) after the branch closes. It also solves the more serious logistical problem for supermarket branches in which there was no way to place a lobby rate board that could not easily be seen from outside the "branch."

The more significant simplification provisions for Truth in Savings are dead for this year. However, this is not a reason to give up on improvements to Regulation DD. Compile information about problems with compliance and report these to the FRB. Also, be ready to support, with clear ideas and examples, any opportunity to streamline and improve Regulation DD.

More Studies in Store
Congress is obviously interested in developments for stored value cards and how they are or are not regulated. The act directs the FRB to conduct a study of electronic stored value cards. The FRB is directed to determine how provisions of the Electronic Funds Transfer Act and Regulation E could be applied to stored value cards without having an adverse impact on the cost, development, or operation of stored value cards.

This mandated study imposes restrictions on how the FRB can proceed with revisions to Regulation E. Essentially, the considerations in the study specified by the burden relief act, cost, development, and operation of stored value cards, are something the FRB must take into account in any rulemaking affecting stored value cards. This requirement makes your comments more valuable and more effective. It will be important to share any information you have on the cost and operation of stored value cards.

ARMS: Alternative Disclosures
Having trouble with that 15-year historical example? Congress just gave you an alternative. Instead of providing the 15-year historical index rate table, lenders may disclose that the periodic payments may "increase or decrease substantially" and indicate the maximum interest rate and payment for a $10,000 loan. The payment example should be based on the maximum possible increase for a loan originated at a recent rate. In other words, you disclose the maximum possible payment which is now an alternative to the historical example.

Yes, it seems too good to be true, but that's what it says. We keep reading it over to be sure. It's hard to believe, but it is there!

Before you go out and celebrate, a warning is in order. This is an alternative to the 15-year historical example, not a replacement. You must make one of the disclosures. The 15-year example remains on the books as an option. Therefore, if you decide to use the 15-year historical example, you must get it right. The creditor who chooses the historical example option will still be liable for accuracy

Other TIL Relief
The Act authorizes the FRB to exempt certain >
The act allows the FRB to exempt certain borrowers based on their having an annual income of at least $200,000 or having net assets of at least $1,000,000 at the time of the transaction. The exemption becomes available only if the customer provides a signed and handwritten waiver.

This means that your trust department and private bankers will still need to know the types of loans and situations to which Truth in Lending applies. Moreover, if the customer wants disclosures and TIL protections, the customer is entitled to them.

Branch Application Changes
The act re-defines branch to exclude ATMs and remote service units. Placement of these units is therefore now exempted from the branch opening and closing requirements.

Similarly, certain types of branch relocations or closings are exempted from the branch closure rules. Relocation of a branch that continues to serve the same immediate neighborhood is not considered a branch closure if it does not substantially affect the nature of the business or customers it serves. Branches closed that were acquired under an emergency acquisition may be closed without being subject to the branch closure procedures.

Examination Coordination
Section 2244 contains an interesting directive to your federal regulatory agency that will have positive consequences for any bank that does business in more than one district or is subject to more than one federal banking regulator. This section directs the agencies to consult on examination activities and "resolve any inconsistencies on the recommendations to be given to such institution as a result of any examinations."

You now have something to cite in the event that different examiners make recommendations that conflict.

Copyright © 1996 Compliance Action. Originally appeared in Compliance Action, Vol. 1, No. 16, 10/96